Analyzing Goodwill and Reporting a Merger On June 1, 2011, Gamma Company acquired all of the net assets of Pi Company for $140,000 cash. The two companies merged, with Gamma Company surviving. On the date of acquisition, Pi Company’s balance sheet included the following:
|
Balance Sheet at June 1, 2011 |
Pi Company |
|
Inventory |
$13,000 |
|
Property and equipment (net) |
165,000 |
|
Total assets |
$178,000 |
|
Liabilities |
$82,000 |
|
Common stock (par $1) |
65,000 |
|
Retained earnings |
31,000 |
|
Total liabilities and stockholders’ equity |
$178,000 |
On the date of acquisition, the inventory had a fair value of $12,000 and the property and equipment had a fair value of $180,000. The fair value of the liabilities equaled their book value.
Required:
1. How much goodwill was involved in this merger? Show computations.
2. Give the journal entry that Gamma Company would make to record the merger on June 1, 2011.